Friday, January 28, 2011

Colgate-Palmolive: fairly valued with a margin of safety


I believe $CL, at approximately $77/share is fairly valued with a margin of safety on a cash flow valuation basis.

Colgate-Palmolive is one of the world's largest consumer product companies. In addition to its namesake toothpaste and detergents, the firm manufactures shampoos, shower gels, deodorants, and shaving products. It also owns specialty pet food maker Hill's, which sells its products through veterinarians and specialty pet retailers. Colgate products are sold around the world; about three fourths of sales come from outside the United States.
(Source: Morningstar.com)

Colgate Announces 4
th Quarter and Full Year 2010 Results
 
I estimated the firm's WACC at 8.13% using the Capital Asset Pricing Model and the company's recent SEC filings.  ValuePro has a baseline WACC calculator here and it calculates the firm's WACC at 6.54%.  I'll go with the higher mark, 8.13%.    

Recent free cash flows and noted growth rates: 
YearFCF $Millions
20001170
20011259
20021268
20031466
20041406
20051395
20061345
20071621
20081555
20092702
20102661
Average Annual Growth: approx 10%
CAGR: approx. 9%
Consensus Forecast Industry 5-Year Growth: approx. 11% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year
Assuming the company achieves a slightly lower 5-year growth rate of 8% per year, and assuming that after the next five years, the company achieves no growth or 0% growth per year forever:
Discounted Cash Flow Valuation
YearFCF $ Millions
02661
12874
23104
33352
43620
53910
Terminal Value51909
The firm's future cash flows, discounted at a WACC of 8.13%, give a present value for the entire firm (Debt + Equity) of $48,365 million. If the firm's fair value of debt is estimated at $3,750 million, then the fair value of the firm's equity could be $44,615 million.
$44,615 million / 483 million outstanding shares is approx $92 per share. A 20% margin of safety from here is approx $74 so assuming all else at $CL meets my standard for good business, I'd buy it today for the long term at $74 or less.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Thursday, January 27, 2011

Baxter offers long term value with a margin of safety


I believe $BAX, at approximately $49/share offers value with a margin of safety on a cash flow valuation basis.

Baxter International focuses on delivering injectable therapies for a wide variety of medical conditions. The firm's BioScience segment specializes in developing treatments for disorders such as hemophilia and immune deficiencies. It also provides a variety of medication delivery systems including intravenous bags, solutions, and other devices to control fluid inflow, including dialysis equipment and solutions for patients with kidney failure.
(Source: Morningstar.com)

Baxter Reports Sales and EPS for Fourth Quarter 2010 in Line with Guidance
I estimated the firm's WACC at 7.69% using the Capital Asset Pricing Model and the company's recent SEC filings.  ValuePro has a baseline WACC calculator here and it calculates the firm's WACC at 6.83%.  I'll go with the higher mark, 7.69%.  

Recent free cash flows and noted growth rates:
YearFCF $Millions
2000566
2001362
2002345
2003636
2004822
20051106
20061657
20071613
20081561
20091895
20102040
Average Annual Growth: approx 18%
CAGR: approx. 14%
Consensus Forecast Industry 5-Year Growth: approx. 16% per year
Consensus Forecast Company 5-Year Growth: approx. 10% per year
Assume the company achieves a slightly lower 5-year growth rate of 9% per year, and assume that after the next five years, the company achieves no growth or 0% growth per year forever.
Discounted Cash Flow Valuation:
YearFCF $ Millions
02040
12224
22424
32642
42880
53139
Terminal Value44468
The firm's future cash flows, discounted at a WACC of 7.69%, give a present value for the entire firm (Debt + Equity) of $41,274 million. If the firm's fair value of debt is estimated at $5,500 million, then the fair value of the firm's equity could be $35,774 million.
$35,774 million / 583 million outstanding shares is approx $61 per share. A 20% margin of safety from here is approx $49 so assuming all else meets my standard for good business, I'd buy $BAX today for the long term at $49 or less.  I believe $BAX offers value with a margin of safety on a cash flow valuation basis.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Tuesday, January 25, 2011

Clorox Company is fairly valued with a margin of safety


I believe $CLX, at approximately $63/share is fairly valued with a margin of safety on a cash flow valuation basis.

For nearly 100 years, Clorox has operated in the household product industry, expanding its portfolio to include such leading brands as Clorox, Glad, Hidden Valley, and Kingsford. The firm distributes its products through mass merchants, grocery stores, and other retail outlets. With its acquisition of Burt's Bees in 2007, Clorox gained entry into the fast-growing natural personal-care category. International sales amount to 20% of the firm's consolidated total.
(Source: Morningstar.com)
I estimated the firm's WACC at 6.38% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:
YearFCF $Millions
2001555
2002699
2003598
2004727
2005614
2006342
2007562
2008560
2009541
2010616
TTM670
Average Annual Growth: approx 5%
CAGR: approx. 1%
Internal Growth Rate: approx. 8%
Consensus Forecast Industry 5-Year Growth: approx. 11% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year
Assume the company achieves a lower 5-year growth rate of 5% per year, and assume that after the next five years, the company achieves no growth or 0% growth per year forever.
Discounted Cash Flow Valuation:
YearFCF $ Millions
0670
1704
2739
3776
4814
5855
Terminal Value14073
The firm's future cash flows, discounted at a WACC of 6.38%, give a present value for the entire firm (Debt + Equity) of $13,552 million. If the firm's fair value of debt is estimated at $2,930 million, then the fair value of the firm's equity could be $10,622 million.
$10,622 million / 139 million outstanding shares is approx $76 per share. A 20% margin of safety from here is approx $61 so I'd buy $CLX today at $61 or less.  I believe $CLX at $63/share is fairly valued with a margin of safety on a cash flow valuation basis.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Thursday, January 20, 2011

L-3 Communications offers long term value with a margin of safety


I believe $LLL, at approximately $78/share, offers long term value with a margin of safety on a cash flow valuation basis.

L-3 Communications is a leading provider of high-technology products, systems, and subsystems in the defense electronics business. The company sells products to the U.S. Department of Defense (76% of 2009 sales) as well as other U.S. and foreign governmental agencies and commercial customers. Areas of focus include intelligence, aircraft modernization, simulation and training, communication systems, and specialized products such as bomb-detection equipment.
(Source: Morningstar.com)
I estimated the firm's WACC at 9.30% using the Capital Asset Pricing Model and the company's recent SEC filings.  ValuePro has a baseline WACC calculator here and it calculates the firm's WACC at 6.74%.  I'm going with the higher mark, 9.30%.

Recent free cash flows and noted growth rates:
YearFCF $Millions
200080
2001125
2002256
2003373
2004540
2005727
2006918
20071113
20081169
20091221
TTM1257
Average Annual Growth: approx 38%
CAGR: approx. 35%
Internal Growth Rate: approx. 5%
Sustainable Growth Rate: approx. 13%
Consensus Forecast Industry 5-Year Growth: approx. 17% per year
Consensus Forecast Company 5-Year Growth: approx. 8% per year
Assuming the company achieves a lower 5-year growth rate of 3% per year, and assuming that after the next five years, the company achieves no growth or 0% growth per year forever.
Discounted Cash Flow Valuation:
YearFCF $ Millions
01257
11295
21334
31374
41415
51457
Terminal Value16131
The firm's future cash flows, discounted at a WACC of 9.30%, give a present value for the entire firm (Debt + Equity) of $15,616 million. If the firm's fair value of debt is estimated at $4,307 million, then the fair value of the firm's equity could be $11,309 million.
$11,309 million / 113 million outstanding shares = $99.91 per share. A 20% margin of safety from here is approx $80 per share and $LLL's current share price is approx $78.  I believe $LLL currently offers long term value with a margin of safety on a cash flow valuation basis.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Cardinal Health offers good long term value with a margin of safety


I believe $CAH, at approximately $41/share, offers good value with a margin of safety.

Cardinal Health is a leading distributor of pharmaceuticals and medical supplies to pharmacies and hospitals. Its operations include procurement, packaging, inventory management, and logistics services. Its largest customers are CVS Caremark and Walgreen.
(Source: Morningstar.com)
I estimated the firm's WACC at 10.17% using the Capital Asset Pricing Model and the company's recent SEC filings.  ValuePro has a baseline WACC calculator here and it calculates the firm's WACC at 7.48%.  I'm going with the higher mark, 10.17%.

Recent free cash flows and noted growth rates:
YearFCF $Millions
2000531
2001699
2002975
20032215
20042279
20051697
2006866
20071136
20081034
20091878
TTM1664
Average Annual Growth: approx 26%
CAGR: approx. 15%
Internal Growth Rate: approx. 2%
Sustainable Growth Rate: approx. 6%
Consensus Forecast Industry 5-Year Growth: approx. 16% per year
Consensus Forecast Company 5-Year Growth: approx. 13% per year
Assume the company achieves a lower 5-year growth rate of 5% per year, and assume that after the next five years, the company achieves no growth or 0% growth per year forever.
Discounted Cash Flow Valuation:
YearFCF $ Millions
01664
11747
21835
31926
42023
52124
Terminal Value21932
The firm's future cash flows, discounted at a WACC of 10.17%, give a present value for the entire firm (Debt + Equity) of $20,735 million. If the firm's fair value of debt is estimated at $2,322 million, then the fair value of the firm's equity could be $18,413 million.
$18,413 million / 349 million outstanding shares = $52.76 per share. A 20% margin of safety from here is approx $42 per share and $CAH's current share price is approx $41.  I believe $CAH currently offers good value with a margin of safety for the long term on a cash flow valuation basis.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Wednesday, January 19, 2011

Raytheon - Good value on a cash flow valuation basis


I believe $RTN, at approximately $51/share, is a good value with a margin of safety.

Raytheon is a major United States defense contractor with nearly $25 billion in annual sales that operates through six segments: integrated defense systems, intelligence and information, missile systems, network-centric systems, space and airborne systems, and technical services. Sales to the U.S. government account for more than 88% of the company's total sales. Waltham, Mass., based Raytheon employs 75,000 people.
(Source: Morningstar.com)
I estimated the firm's WACC at 9.11% using the Capital Asset Pricing Model and the company's recent SEC filings. 
Recent free cash flows and noted growth rates:
YearFCF $Millions
2000529
2001-353
2002581
20031043
20041708
20052177
20062371
2007800
20081711
20092445
TTM1824
CAGR: approx. 19%
Internal Growth Rate: approx. 7%
Sustainable Growth Rate: approx. 18%
Consensus Forecast Industry 5-Year Growth: approx. 13% per year
Consensus Forecast Company 5-Year Growth: approx. 8% per year
Assume a lower 5-year growth rate of 6% per year, and assume that after the next five years, the company achieves no growth or 0% growth per year forever.
Discounted Cash Flow Valuation:
YearFCF $ Millions
01824
11933
22049
32172
42303
52441
Terminal Value28397
The firm's future cash flows, discounted at a WACC of 9.11%, give a present value for the entire firm (Debt + Equity) of $26,731 million. If the firm's fair value of debt is estimated at $2,781 million, then the fair value of the firm's equity could be $23,950 million.
$23,950 million / 365 million outstanding shares = $65.62 per share. A 20% margin of safety from here is approx $52 per share and $RTN's current share price is approx $51.  I consider $RTN a good buy with a margin of safety for the long term on a cash flow valuation basis.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.